The international rating agency Moody’s revealed on Friday, October 25, its assessment of France’s sovereign debt, weakened by the decline in its public accounts.
While it kept its credit rating on France unchanged at “Aa2”, it nevertheless indicated that it was considering downgrading it in the next six months, changing the outlook from “stable” to “negative”.
In its note, Moody’s justifies this change of perspective by the “growing risk” that the government will not be able to implement measures intended to limit the budget deficit and the deterioration of the country’s debt.
“The fiscal deterioration we have already observed exceeds our expectations and contrasts with governments in countries with a similar rating that tend to consolidate their public finances in the current environment,” the agency said.
The Minister of Economy, Finance and Industry, Antoine Armand , indicated that he “takes note” of this decision and affirmed that “France has real economic strengths” and is “capable of carrying out large-scale reforms”, according to a reaction sent to AFP.
“Insufficient” assets
A downgrade was feared, in the midst of the debate in the National Assembly on the 60 billion euro effort envisaged by the government in its draft budget for 2025 in order to reduce the public deficit to 5% of GDP and attempt to regain control of a colossal debt.
French debt continues to attract investors, but its interest rates are now at the level of those of countries such as Portugal or Spain , which are considered riskier.
According to the Asterès firm, more than the decisions of the rating agencies, the consequences of which would be, according to it, “limited on the borrowing costs of the French State”, it is the situation in France which is most important.
The debt burden is today the second largest budget item behind education with more than 50 billion euros and it could become the first by 2027. This reduces the financial room for maneuver.
“Often, the impact of a downgrade is insignificant because investors on the markets were already aware of the problems of the country concerned and were already taking them into account when determining the interest rate required on its bonds,” notes Éric Dor.
To preserve France’s credibility, the government wants to reduce public spending in 2025, which it is the champion of in Europe, and increase taxes on businesses and wealthy taxpayers. However, it is struggling to convince a fragmented National Assembly , where it is in the minority.
France’s strengths – diversified economy, solid tax and banking systems in particular – “risk being insufficient” in the face of the difficulty “of obtaining a majority to vote for the measures necessary to clean up public finances”, underlines Éric Dor.
Risk of significant slippage in public debt
The government intends to reduce the public deficit from 6.1% of GDP in 2024 to 5% in 2025 to return to European targets in 2029, with 2.8%.
While growth would reach 1.1% in 2025 as this year, partially penalized by the recovery measures, public debt would continue to swell to reach almost 115% of GDP, almost double the maximum set at 60% by Brussels.
The International Monetary Fund ( IMF ) warned on Wednesday of a risk of significant slippage without additional efforts: the deficit would then reach 5.9% next year and would remain at this level in 2029, with debt peaking at 124.1% of GDP by that time.
Moody’s decision comes two weeks after that of Fitch , which placed France under “negative outlook” without revising its rating downwards, despite “increased risks” and doubts about official deficit forecasts.
The S&P agency is due to make its decision on November 29. In May, it lowered the French rating from “AA” to “AA-“.
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